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entitled 'Federal Tax Collection: Potential for Using Passport
Issuance to Increase Collection of Unpaid Taxes' which was released
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United States Government Accountability Office:
GAO:
Report to Congressional Requesters:
March 2011:
Federal Tax Collection:
Potential for Using Passport Issuance to Increase Collection of Unpaid
Taxes:
GAO-11-272:
GAO Highlights:
Highlights of GAO-11-272, a report to congressional requesters.
Why GAO Did This Study:
According to the Internal Revenue Service (IRS), as of the end of
fiscal year 2010, the balance of reported unpaid federal taxes was
about $330 billion. Given the many challenges that IRS faces, the
enforcement of the tax laws and the tax code is on GAO’s list of high-
risk areas. GAO was asked to (1) determine, to the extent possible,
the magnitude of known unpaid federal taxes for individuals who were
issued passports in fiscal year 2008; and (2) identify examples of
passport recipients who have known unpaid federal taxes. GAO reviewed
data from the Department of State (State) and IRS. To identify
examples for detailed audit and investigation, GAO chose a
nonrepresentative selection of 25 passport recipients based on a
number of factors, including amount of taxes owed. These case studies
were chosen, among other things, by the more egregious amount of
federal taxes owed and cannot be generalized beyond the cases
presented.
What GAO Found:
State issued passports to about 16 million individuals during fiscal
year 2008; of these, over 224,000 individuals (over 1 percent) owed
over $5.8 billion in unpaid federal taxes as of September 30, 2008.
State is not authorized to restrict the issuance of passports to
individuals because they owe federal taxes. In addition, federal law
does not permit IRS to disclose taxpayer information, including unpaid
federal taxes, to State officials unless the taxpayer consents. In
contrast, federal law permits certain restrictions on the issuance of
passports to individuals, such as individuals owing child support
debts over $2,500. For 2008, the estimated amount of unpaid federal
taxes is likely understated because it excludes individuals who have
not filed tax returns or underreported income. In addition, according
to State officials, State cannot compel a passport applicant to
provide a Social Security Number (SSN). As a result, State’s records
sometimes did not contain a valid SSN, which is necessary to match
passport data to IRS data. Also, the number of passport holders and
dollars owed only includes 1 year of passports that were issued,
substantially understating the total tax debt for all passport holders.
GAO judgmentally selected 25 passport recipients to investigate for
abuse related to the federal tax system or criminal activity. Of these
cases, at least 10 passport recipients had been indicted or convicted
of federal laws. In addition, IRS assessed trust fund recovery
penalties on several passport recipients when the individual did not
remit payroll taxes to the federal government. Rather than fulfill
their role as trustees of this money and forward it to IRS, they
diverted the money for other purposes. Willful failure to remit
payroll taxes is a felony under U.S. law. Some of these individuals
accumulated substantial wealth and assets, including million-dollar
houses and luxury vehicles, while failing to pay their federal taxes.
At least 16 passport recipients traveled outside the country while
owing federal taxes. At least 4 passport recipients resided in another
country at the time of GAO’s investigation. Two individuals used the
identities of deceased individuals to fraudulently obtain passports
and then used these passports to travel to Mexico, France, and Africa.
In one case, the unpaid tax debt belonged to a deceased individual,
and in the other case, the debt was incurred by the imposter. We
referred these 2 cases to IRS for further investigation.
Table: Examples of Abusive and Criminal Activity:
Type: Gambler;
Unpaid tax debt: $46.6 million;
Description: The individual generally claimed to owe no taxes on
returns filed in the early 2000s. Received about a $2 million tax
refund for one of these returns. Subsequent IRS tax examinations in
the mid 2000s determined that the recipient actually owed tens of
millions of dollars in taxes for those tax years. Gambled tens of
millions of dollars at the same time the income taxes were not paid.
Type: World Bank employee;
Unpaid tax debt: $300 thousand;
Description: Has not filed income tax returns in the 2000s. Generally
failed to make any personal income tax payments or withholdings to IRS. Type: Department of State contractor;
Unpaid tax debt: $100 thousand;
Description: Owed personal income taxes and trust fund recovery
penalties for failure to pay employment taxes. Did not file income tax
returns for 2 years.
Source: GAO analysis of IRS, State, public, and other records.
[End of table]
What GAO Recommends:
If Congress is interested in pursuing a policy of linking federal tax
debt collection to passport issuance, it may consider taking steps to
enable State to screen and prevent individuals who owe federal taxes
from receiving passports. This could include asking State and IRS to
jointly study policy and practical issues and develop options with
appropriate criteria and privacy safeguards. State provided technical
comments which we incorporated into the report as appropriate.
View [hyperlink, http://www.gao.gov/products/GAO-11-272] or key
components. For more information, contact Greg Kutz at (202) 512-6722
or kutzg@gao.gov.
[End of section]
Contents:
Letter:
Background:
Magnitude of Unpaid Taxes Owed by Individuals Issued a Passport:
Examples of Individuals Issued a Passport Involved in Abusive and
Potentially Criminal Activity Related to the Federal Tax System:
Conclusion:
Matter for Congressional Consideration:
Agency Comments:
Appendix I: Scope and Methodology:
Appendix II: Passport Recipients Owe Federal Taxes:
Tables:
Table 1: Summary Information on 15 Passport Recipients with Unpaid
Federal Taxes:
Table 2: Summary Information on 10 Passport Recipients with Unpaid
Federal Taxes:
Figures:
Figure 1: Passport Recipients with Unpaid Taxes by Tax Type as of
September 30, 2008:
Figure 2: Passport Recipients Owing Unpaid Taxes (by age of
assessment) as of September 30, 2008:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
March 10, 2011:
The Honorable Max Baucus:
Chairman:
Committee on Finance:
United States Senate:
The Honorable Charles E. Grassley:
Ranking Member:
Committee on the Judiciary:
United States Senate:
The Internal Revenue Service (IRS) pursues collection of unpaid
federal taxes to help ensure compliance with and confidence in the tax
system. As of September 30, 2010, IRS had identified cumulative unpaid
taxes, including interest and penalties, of about $330 billion. Beyond
this reported tax debt, the amount of unknown tax debts is
substantial. This is because the inventory of tax debts excludes
underreported amounts filed by taxpayers and taxes owed by taxpayers
who do not file tax returns.[Footnote 1] Given the many challenges
that IRS faces, the enforcement of the tax laws continues to be on our
list of high-risk areas.
In fiscal year 2008, the Department of State (State) issued over 16
million passports to U.S. citizens. Federal law permits the Secretary
of State to deny or revoke the issuance of passports in certain
circumstances. For example, the Passport Denial Program described in
42 U.S.C. § 652(k) requires State to deny passports to individuals
based on delinquent child support obligations. Under the program, the
names of noncustodial parents certified by a state as having
arrearages exceeding $2,500 are submitted by the Department of Health
and Human Services to State, which denies them U.S. passports upon
application or the use of a passport service until the debt is
satisfied. Since the program was initiated in 1998, about $200 million
has been collected on child support obligations from this program.
However, State is not authorized to restrict the issuance of passports
to individuals because they owe federal taxes.
Given your interest in the challenges that IRS faces in collecting
unpaid taxes, and the potential for substantial future tax collections
from tax-delinquent individuals holding or seeking issuance of a
passport, you asked us to (1) determine, to the extent possible, the
magnitude of known unpaid federal taxes for individuals who were
issued passports in fiscal year 2008; and (2) identify examples of
passport recipients who have known unpaid federal taxes.
To identify the magnitude of passport recipients with unpaid federal
taxes, we obtained and analyzed IRS tax debt data as of September 30,
2008, and obtained and analyzed data on passport recipients from State
for fiscal year 2008. We matched the list of passport recipients with
IRS tax debts using the Social Security number (SSN). To identify
examples, we selected 25 passport recipients for a detailed audit and
investigation of the extent and nature of abusive or criminal
activity. A nonrepresentative selection of 25 cases were selected from
the population of passport recipients who owed federal taxes described
above using a data mining approach based on a number of factors, such
as total amount of taxes owed by passport recipients, number of tax
years that the passport recipient did not pay all taxes, types of
taxes, and location of the tax recipient. For these 25 cases, we
reviewed copies of automated tax transcripts and other tax records
(for example, revenue officers' notes) and performed additional
searches of criminal, travel, financial, and public records. These
case studies serve to illustrate the sizeable amounts of taxes owed by
some individuals who were issued passports in fiscal year 2008 and
other characteristics of the cases that can extend beyond the tax
system. These cases were among the more egregious and cannot be
generalized beyond the cases presented. A more detailed description of
the scope and methodology related to our audit and investigative work
supporting this report is provided in appendix I.
We conducted this forensic audit from October 2009 to March 2011 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives. We conducted
our related investigative work in accordance with standards prescribed
by the Council of the Inspectors General on Integrity and Efficiency.
Background:
Individuals with Unpaid Taxes Are Not Prohibited from Receiving
Passports:
Federal law does not authorize State to deny the issuance of passports
to individuals who owe federal taxes. Federal law permits the
Secretary of State to deny or revoke the issuance of passports only in
certain circumstances, including, but not limited to, when the
individual:
* is subject to a criminal court order, condition of probation, or
condition of parole, any of which forbids departure from the United
States and the violation of which could result in the issuance of a
federal warrant of arrest, including a warrant issued under the
Federal Fugitive Felon Act;
* is over $2,500 delinquent in child support;
* is delinquent in certain Department of State debts;
* has an outstanding felony warrant;
* has an outstanding foreign felony warrant;
* is subject to an extradition request that has been presented to a
foreign country;
* has been declared legally incompetent;
* used a passport or crossed an international border to commit an act
based on which the individual was subsequently convicted of certain
drug trafficking crimes, but only during the period the individual is
imprisoned or on parole or supervised release; or:
* used a passport or crossed an international border to commit an act
based on which the individual was subsequently convicted under the
federal "sex tourism" statute, but only during the period the
individual is imprisoned or on parole or supervised release.
Federal Law Prevents Disclosure of Taxpayer Information:
The protection of taxpayer information is commonly thought to be
critical to voluntary compliance with the tax code and necessary to
protect taxpayer privacy. Under current law, taxpayer information is
protected under 26 U.S.C. § 6103, among other provisions. IRS must
keep taxpayer information confidential and may only disclose it under
limited circumstances, e.g., for federal or state tax administration,
to assist in the enforcement of child support programs, and to verify
eligibility for public assistance programs, unless the taxpayer
consents to such disclosure. Individuals or agencies receiving
taxpayer data must, as a condition of receiving such data, have
safeguards for the protection of, and for accounting for, the use of
such data.
Magnitude of Unpaid Taxes Owed by Individuals Issued a Passport:
The State Department issued passports to over 224,000 individuals who
owed over $5.8 billion in known unpaid federal taxes as of September
30, 2008.[Footnote 2] This represented over 1 percent of the
approximately 16 million individuals issued a passport during fiscal
year 2008. Currently, federal law does not authorize State to deny the
issuance of passports to individuals who owe federal taxes. Because
IRS's database does not include amounts owed by taxpayers who have not
filed tax returns and for which IRS has not assessed tax amounts due,
the estimated amount of unpaid federal taxes is likely understated.
Also, the figures cited within this report only represent passports
issued for 1 fiscal year. As such, our estimate likely understates the
total amount of unpaid taxes by all passport holders. According to
State, there are tens of millions of passport holders, thus the number
of passport holders with unpaid federal taxes and the magnitude of
unpaid federal taxes owed by passport holders are likely to be
substantially higher than the figures cited in this report.
Tax Characteristics of Individuals Issued a Passport:
As shown in figure 1, about 90 percent of the approximately $5.8
billion in unpaid taxes comprised individual income taxes. The other
10 percent of taxes were taxes owed from "trust fund recovery
penalties."[Footnote 3] In these situations, IRS found that
individuals within the business (e.g., corporate officers) were
personally liable for the payroll taxes withheld from employees'
paychecks but not forwarded and assessed a civil monetary penalty for
those withheld amounts.[Footnote 4]
Figure 1: Passport Recipients with Unpaid Taxes by Tax Type as of
September 30, 2008:
[Refer to PDF for image: pie-chart]
Trust fund recovery penalties: $591 million (10%);
Individual income taxes: $5 billion (90%).
Source: GAO analysis of Department of State and IRS data.
[End of figure]
A substantial amount of the unpaid federal taxes shown in IRS records
as owed by individuals issued a passport in fiscal year 2008 had been
outstanding for several years. As reflected in figure 2, about 41
percent of the $5.8 billion in unpaid taxes was assessed within the
last 3 years. Our previous work has shown that as unpaid taxes age,
the likelihood of collecting all or a portion of the amounts owed
decreases.[Footnote 5] This is, in part, because of the continued
accrual of interest and penalties on the outstanding tax debt, which,
over time, can dwarf the original tax obligation. The amount of unpaid
federal taxes reported above does not include all tax debts owed by
individuals issued a passport in fiscal year 2008 because of statutory
provisions that give IRS a finite period under which it can seek to
collect unpaid taxes. Generally, there is a 10-year statutory
collection period beyond which IRS is prohibited from attempting to
collect tax debt.[Footnote 6] Consequently, if the individuals issued
a passport owe federal taxes beyond the 10-year statutory collection
period, the older tax debt may have been removed from IRS's records.
We were unable to determine the amount of tax debt that had been
removed.
Figure 2: Passport Recipients Owing Unpaid Taxes (by age of
assessment) as of September 30, 2008:
[Refer to PDF for image: pie-chart]
Over 10 years[A]: $476 million (8%);
7 to 10 years: $957 million (16%);
3 to 7 years: $2 billion (35%);
1 to 3 years: $1.7 billion (29%);
Under 1 year: $699 million (12%).
Source: GAO analysis of Department of State and IRS data.
[A] The 10-year time limit may be suspended and include periods during
which the taxpayer is involved in a collection due process appeal,
litigation, a pending offer-in-compromise, or an installment
agreement. As a result, the figure includes taxes that are for tax
periods for over 10 years.
[End of figure]
Further, for many of these debts, IRS is attempting to collect using
the Federal Payment Levy Program (FPLP).[Footnote 7] FPLP is a levy
program where the Department of the Treasury collects delinquent tax
debt by continuously levying (offsetting) up to 15 percent of certain
federal payments (e.g., federal salary payments and certain Social
Security Administration payments) made to tax debtors.[Footnote 8] IRS
typically sends their tax debts to FPLP except in cases where:
(1) IRS has not completed its notification process;
(2) tax debtors have filed for bankruptcy protection or other
litigation;
(3) tax debtors have agreed to pay their tax debt through monthly
installment payments or have requested to pay less than the full
amount owed through an offer in compromise;
(4) IRS determined that the tax debtors are in financial hardship;
(5) tax debtors are filing an amended return; and:
(6) IRS determined that specific circumstances (e.g., criminal
investigation) exist that warrant special exclusion from FPLP.
Our analysis of Treasury data found that about 42,500 of the
approximately 224,000 passport recipients were sent to Treasury for
continuous levy. The dollar amount of these debts was about $1.3
billion.
Unpaid Federal Taxes of Individuals Issued a Passport Are
Substantially Understated:
Although the over $5.8 billion in unpaid federal taxes owed by
individuals issued a passport as of September 30, 2008, is a
significant amount, it likely substantially understates the full
extent of unpaid taxes owed by these or other individuals. The IRS tax
database reflected only the amount of unpaid federal taxes reported by
the individual on a tax return or assessed by IRS through its various
enforcement programs. The IRS database does not reflect amounts owed
by businesses and individuals that have not filed tax returns or
understated their taxable income and for which IRS has not assessed
tax amounts due. For example, during our audit, we identified several
instances from our 25 case studies in which individuals issued a
passport failed to file tax returns for a particular tax period and
IRS had not assessed taxes for these tax periods. Consequently, while
these individuals likely had unpaid federal taxes, they were listed in
IRS records as having no unpaid taxes for those periods. Further, our
analysis did not attempt to account for individuals who purposely
underreported income and were not specifically identified by IRS as
owing the additional federal taxes.
In addition, although federal law requires passport applicants
applying for or renewing a passport to provide their SSN if the
applicant has a SSN, having a SSN is not a prerequisite to obtaining a
passport.[Footnote 9] According to State officials, section 7(a)(1) of
the Privacy Act prevents State from refusing to issue a passport to an
applicant even though the application does not have a SSN. State
officials stated that State needs legislation to compel passport
applicants to provide a SSN and to withhold passport issuance or deny
the application for failure to do so. Therefore, we found that State
records did not always contain this key field or contained obviously
false numbers, as State instructs applicants who do not have a SSN to
enter all zeros into the SSN field of the passport application. The
lack of SSNs prevented us from determining whether those passport
applicants had unpaid federal taxes and, if so, the amount of unpaid
taxes owed by them.
Because our $5.8 billion estimate in unpaid taxes only represents 1
year of passport recipients, the dollar amount of tax debts owed by
individuals who hold passports is likely to be substantially higher.
State issues millions of passports each year.[Footnote 10] As such,
the amount of tax debt for individuals currently holding U.S.
passports may be in multiples of our $5.8 billion estimate for fiscal
year 2008. Because passports are typically valid for up to 10 years,
many of these individuals will likely owe federal taxes at the time
they apply for renewal of their passports.
Examples of Individuals Issued a Passport Involved in Abusive and
Potentially Criminal Activity Related to the Federal Tax System:
Among the 25 cases involving passport recipients with outstanding tax
debt that we audited and investigated, we found abusive or potentially
criminal activity related to the federal tax system. These 25 passport
recipients either lived outside the United States or resided in
California, Florida, Illinois, Nevada, New Jersey, New York, Oregon,
Texas, or Washington. Of these cases, we identified several passport
recipients for which IRS had assessed trust fund recovery penalties
due to these individuals' willful failure to remit payroll taxes
withheld from their employees' paychecks to the federal government. In
these situations, IRS found that several of these individuals were to
be held personally liable for the withheld amounts not forwarded and
assessed a civil monetary penalty for those withheld amounts. Rather
than fulfill their role as "trustees" of this money and forward it to
IRS as required by law, these passport recipients diverted the money
for other purposes. Our investigations revealed that, despite owing
substantial amounts of federal taxes to IRS, some of these 25 passport
recipients had substantial personal assets--including multimillion
dollar homes and luxury cars. For example, one passport recipient
purchased a house for about $2 million and investment property for
about $1.5 million while the recipient owed over $1 million in federal
taxes. Another passport recipient owned luxury vehicles and gambled
millions of dollars while owing about $47 million in taxes. This
recipient received multimillion dollars in federal tax refunds to
support this lifestyle until IRS discovered the tax debts in a later
examination.
Our investigations found that several of these recipients used their
passports to travel internationally for business. Two of the case
study passport recipients are or had been individuals who worked on
State contracts who traveled to Europe, Asia, and the Caribbean
performing work for State. These individuals were or are potentially
performing sensitive work for the Department of State on behalf of the
United States. However, 26 U.S.C. § 6103 precludes IRS from disclosing
their names to State, and precludes us from both disclosing their
names to State and from contacting State to determine whether these
individuals have security clearances. Our investigations also found
that two individuals committed identity theft by using the identities
of deceased individuals to fraudulently obtain passports. Our
investigations found that these individuals used their passports to
travel to Mexico, France, and Africa. Issuing passports to "deceased"
individuals, in these cases, enabled fraudulent activity of these
individuals who traveled internationally using the identity of and
impersonating the deceased individual. We referred these two cases to
IRS for further investigation. Similar to the State contractors, 26
U.S.C. § 6103 also precludes us from referring these fraud cases to
State directly.[Footnote 11] Our investigations also revealed that at
least four passport recipients currently reside in another country
while owing federal taxes. For example, we identified one passport
recipient who filed no tax returns nor paid any taxes to IRS during
the 2000s, who currently lives overseas while working for the World
Bank.
During our investigations, we also noted the following:
* At least 14 passport recipients did not file their annual income tax
return for 1 or more years.[Footnote 12]
* For at least 20 passport recipients, IRS had filed federal tax liens
against a recipient's property.
* IRS included at least 16 of the passport recipients in FPLP for
continuous levy.
* At least 10 passport recipients had been indicted or convicted of
violating federal laws.[Footnote 13] These include indictments and
convictions for controlled substance distribution, making false
statements to the government, bank fraud, and money laundering.
* One passport recipient lives in a million-dollar house that is owned
by the individual's employer. The employer leases the house to the
recipient for thousands of dollars a month.
Table 1 highlights 15 of the 25 cases of individuals owing federal
taxes at the time of passport issuance. Appendix II provides details
on the other 10 cases we examined. We are referring all 25 cases we
examined to IRS for further collection activity and criminal
investigation, if warranted.
Table 1: Summary Information on 15 Passport Recipients with Unpaid
Federal Taxes:
Case: 1;
Unpaid federal tax[A]: $46.6 million;
Comments:
* Individual filed tax returns in the early 2000s showing that no
federal taxes were owed during this time period. For one return, the
individual received about a $2 million tax refund. Subsequent IRS tax
examinations in the mid-2000s determined that the recipient owed tens
of millions of dollars in taxes;
* Individual gambled tens of millions of dollars at the same time the
recipient did not pay the income taxes;
* Individual also owned two luxury vehicles during this time period;
* Individual reported tens of millions of dollars in income from a
limited liability company in late 2000s income tax return. Individual
paid only about a quarter of the millions of taxes owed for that tax
return;
* Individual was a partial owner of a professional sports team;
* Individual filed an offer in compromise, which would have settled
the debt for less than $2 million to be paid over 5 years. IRS
rejected the compromise offer;
* IRS has filed tax liens. IRS has referred the individual to Treasury
for the continuous levy program.
Case: 2;
Unpaid federal tax[A]: $39.9 million;
Comments:
* Individual owes tens of millions of dollars of personal income taxes
from 1980s through 2000s. Individual generally did not make any
estimated payments or had withholdings made from income during the
early 2000s;
* Individual has not filed personal income tax returns for 4 years in
the 2000s;
* Individual was previously convicted for bank fraud in the 1990s;
* Financial reports indicated individual had foreign cash transactions
of hundreds of thousands of dollars;
* Individual has possession of a high-rise condominium overlooking a
beach;
* IRS has filed tax liens against the individual's property. IRS has
referred the individual to Treasury for the continuous levy program;
* Individual recently made trips to Turkey, Netherlands, Bahamas,
Italy, United Kingdom, France, Japan, Canada, Antigua, and Barbuda.
Case: 3;
Unpaid federal tax[A]: $4.9 million;
Comments:
* Individual is in the oil and gas industry. Individual owed personal
income taxes for 4 years during the 2000s. In addition, individual has
not filed personal income tax returns to IRS for 2 tax years during
the late 2000s;
* Individual was assessed hundreds of thousands of dollars in trust
fund recovery penalties for failure to pay employment taxes for about
1 year in the late 2000s;
* Individual owned several luxury vehicles at the same time the
individual owed taxes. Individual had owned a multimillion dollar
house which was recently foreclosed by the bank;
* IRS has filed tax liens against the individual property. IRS has
referred the individual to Treasury for the continuous levy program.
Case: 4;
Unpaid federal tax[A]: $2.0 million;
Comments:
* Individual is a personal injury attorney;
* Individual significantly underpaid the federal taxes owed for each
year since the late 1990s. For example, in 1 year, individual owed
over $400,000 in federal taxes but did not make any federal tax
payments during that year;
* Individual is the owner of two corporations. For both corporations,
IRS records indicate that the individual does not comply with the
filing and paying of payroll taxes. Individual was assessed tens of
thousands of dollars in trust fund recovery penalties for several
years for failure to pay employment taxes in the early 2000s;
* IRS has filed tax liens against the individual's property. IRS has
referred the individual to Treasury for the continuous levy program;
* While owing taxes, the individual owned a sports boat worth tens of
thousands of dollars;
* Individual made multiple large cash deposits and withdrawals
totaling tens of thousands of dollars;
* While owing taxes, the individual recently traveled to Canada.
Case: 5;
Unpaid federal tax[A]: $1.8 million;
Comments:
* Individual generally did not make any payments nor had withholdings
made from income during the 2000s. Recipient failed to file a tax
return for 1 year during the 2000s;
* Individual filed an offer in compromise, which would have settled
the tax debt for about $1,000. IRS rejected the compromise offer. IRS
records indicate that the recipient used the compromise offer as a
means to delay the collection process;
* Individual was previously involved in a ponzi scheme;
* IRS has filed tax liens against the individual's property. IRS has
referred the individual to Treasury for the continuous levy program;
* While not paying taxes, the individual took a trip to Canada. In
addition, passport recipient told our investigators that he regularly
travels to Mexico for personal business;
* IRS closed active collection activities against the recipient
because IRS records indicate that it cannot locate the taxpayer and
assets have not been identified. During the course of our
investigation, our investigators were able to identify and locate the
individual.
Case: 6;
Unpaid federal tax[A]: $1.4 million;
Comments:
* Individual is an attorney at a law firm. Individual makes hundreds
of thousands of dollars per year. In last tax return submitted to IRS
in the late 2000s, individual reported about $300,000 in taxable
income;
* Individual significantly underpaid the federal taxes owed for each
year in the 2000s. For example, in 1 year, individual owed over
$200,000 in federal taxes but made only $10,000 in federal tax
payments during that year;
* Individual filed an offer in compromise, which would have settled
the tax debt for about $350,000, to be paid in installments. IRS
rejected the compromise offer because the individual's first check was
returned for insufficient funds and taxpayer failed to make estimated
tax payments during that calendar year;
* IRS has filed tax liens against the individual's property. IRS has
referred the individual to Treasury for the continuous levy program;
* Individual owned a luxury vehicle at the same time the recipient
owed taxes;
* In the late 2000s, individual resided in Asia.
Case: 7;
Unpaid federal tax[A]: $1.4 million;
Comments:
* Individual owed personal income taxes for 2 years during the early
2000s. Individual has not filed income tax returns since the mid-
2000s;
* In the mid-2000s, a law enforcement agency seized assets worth
millions of dollars based on a drug investigation;
* IRS has filed tax liens against the individual's property. IRS has
referred the individual to Treasury for the continuous levy program;
* Individual owned a luxury vehicle at the same time the recipient
owed taxes;
* In the mid-to late 2000s, the individual traveled to Canada, Europe,
the Caribbean, South America, and Central America while owing taxes.
Case: 8;
Unpaid federal tax[A]: $1.1 million;
Comments:
* Individual was assessed hundreds of thousands of dollars in trust
fund recovery penalties for failure to pay employment taxes for over 3
years in the early 2000s;
* Individual gambled tens of thousands of dollars at the same time the
recipient did not pay the income taxes;
* IRS records indicated that individual significantly understated the
value of property by about $500,000 in a filed offer in compromise to
IRS;
* IRS has filed tax liens against the individual's property. IRS has
referred the individual to Treasury for the continuous levy program;
* Individual recently made trips to Mexico while owing federal taxes.
Case: 9;
Unpaid federal tax[A]: $500,000;
Comments:
* Individual is a physician who owns a practice. Individual owed
personal income taxes during the 1990s and 2000s. According to IRS
records, the individual had financial difficulties, in part, due to
suspension of medical license;
* Individual generally did not make any estimated payments nor had
withholdings made during the 2000s. Individual did not make any
subsequent payment after the taxes were assessed;
* Individual had a felony conviction for fraudulently obtaining
controlled substances;
* Individual did not file an income tax return for 2008;
* IRS has filed tax liens against the individual's property. IRS has
referred the individual to Treasury for the continuous levy program;
* IRS records show that IRS has classified the individual's tax debts
as currently not collectible because IRS has determined that the
individual does not have any assets and does not have the ability to
pay the debts;
* While owing taxes, individual had overseas trips to Europe.
Individual recently traveled to the Caribbean, including two cruises
from the Caribbean and Canada.
Case: 10;
Unpaid federal tax[A]: $400,000;
Comments:
* Individual works for a paralegal business. The individual is also a
board member of a nonprofit agency that receives federal government
grants;
* Individual has a history of prior businesses that incurred tax
liabilities and then closed only to re-open as a new business or
corporation;
* Individual has submitted several offers in compromise to IRS during
the 2000s. IRS rejected each of those offers;
* IRS has filed tax liens against the individual's property;
* The individual recently took trips to the Caribbean islands and
Europe.
Case: 11;
Unpaid federal tax[A]: $400,000;
Comments:
* Individual lives overseas. Individual consults with other
individuals in creating offshore companies;
* Individual generally did not make any estimated payments nor had
withholdings made from income since the late 1990s;
* Financial reports indicate that the individual owns foreign bank
accounts in Central America and Canada;
* IRS has filed tax liens against the individual's property. IRS has
referred the individual to Treasury for the continuous levy program;
* Individual recently made trips to Canada, Central America, and
Germany.
Case: 12;
Unpaid federal tax[A]: $300,000;
Comments:
* Individual currently lives overseas and currently works for the
World Bank;
* Individual has not filed income tax returns in the 2000s. Individual
generally did not make any estimated payments nor had withholdings
made from their income;
* IRS has filed tax liens against the individual's property. IRS has
referred the individual to Treasury for the continuous levy program.
Case: 13;
Unpaid federal tax[A]: $100,000;
Comments:
* Individual is a State contractor;
* Individual owed personal income taxes for several years during the
late 1990s and early 2000s;
* Individual did not file income tax returns for 2 years in the late
2000s;
* Individual was assessed thousands of dollars in trust fund recovery
penalties for failure to pay employment taxes in the mid-2000s. IRS
found that the individual willfully failed to collect, account for, or
pay over to IRS the employees' share of the trust fund taxes;
* IRS records indicate that the individual has a long history of
noncompliance. According to IRS records, individual has been
uncooperative and has not made any satisfactory arrangements to
satisfy the outstanding tax liability;
* IRS filed tax liens against the individual's property. IRS has
referred the individual to Treasury for the continuous levy program;
* Individual recently made trips to Middle East, Europe, Africa, and
the Caribbean. Individual was also on an international cruise.
Case: 14;
Unpaid federal tax[A]: $60,000;
Comments:
* Individual assumed identity of an individual who died in the 1980s.
State issued a passport to the individual (referred to as "passport
recipient") who assumed the identity of the deceased individual;
* IRS records also indicate that the passport recipient incurred tax
debts using the identity of the deceased individual during the early
2000s;
* The passport recipient received a tax refund (via refund
anticipation loan) of about $2,500 for a tax year in the early 2000s,
including an education credit of about $400. Subsequently, the
passport recipient was assessed additional taxes by IRS after the
refund was issued;
* Passport recipient used a fictitious address on the tax return;
* Passport recipient has not filed any tax returns subsequent to the
tax return mentioned above;
* Passport recipient used a mail box store for receiving mail for a
couple of years;
* Passport recipient recently traveled to Ghana, Senegal, and France.
Case: 15;
Unpaid federal tax[A]: $20,000;
Comments:
* Individual assumed the identity of an individual who died in the
2000s. At the time of death, the deceased individual owed federal
taxes. State subsequently issued a passport to the individual who
assumed the identity of the deceased individual;
* IRS records indicate that the SSN of the deceased person is being
used;
* An individual using the deceased person's identity recently traveled
to Mexico.
Source: GAO analysis of IRS, State, public, and other records.
Note: Dollar amounts are rounded.
[A] Unpaid tax amount as reported by IRS as of July 2010. Unpaid tax
amount does include penalty and interest.
[End of table]
In December 2010, we met with IRS to discuss the 25 cases that we
investigated and audited to obtain an understanding of IRS's
investigative and collection activities performed on each case.
Although IRS did not provide detailed investigative and collection
activities for each case, IRS officials did broadly discuss certain
barriers and limitations in the investigation and collection efforts
by the agency for these 25 cases and other individuals and entities
that owe taxes. In addition, IRS officials explained the impact 26
U.S.C. § 6103 has on IRS's ability to share information with State.
Specifically, IRS officials stated that they cannot inform Department
of State of the two individuals who have worked on State contracts or
the two deceased individuals we identified through our investigations
without the taxpayers' consent. IRS officials stated that 26 U.S.C. §
6103 prevents this disclosure of the deceased individuals even though
they may pose security risks to the nation based on the fraudulent
acquisition of the passport[Footnote 14]. IRS officials stated that
six of the cases were under criminal investigation or are currently
under investigation.
In a December 2010 meeting with IRS officials, we also discussed what
IRS and State can do to prevent the issuance of passports to these 25
individuals with federal tax delinquencies. As discussed earlier,
State currently cannot deny the issuance of passports to individuals
who owe federal taxes, although passports can be denied for other
reasons. For State to deny passports for this reason, legislation
would need to be passed to provide such authorization and to permit
IRS to disclose taxpayer information. If such a federal law were
enacted, criteria would need to be established in determining when a
tax debt meets the passport restriction requirement. In addition,
Congress or the executive branch may need to decide if certain
individuals should be exempted from this requirement, such as for
national security purposes.
To implement such a restriction, the executive branch may want to use
the FPLP as the mechanism or as a model to determine whether an
individual owes federal taxes for purposes of passport restrictions.
Currently, the Department of Defense (DOD) and Centers for Medicare &
Medicaid Services (CMS) periodically send their payment information
(e.g., DOD federal contracts payment data and Medicare claims data for
physician services, respectively) to FPLP to determine whether those
payments should be levied for federal taxes. Treasury electronically
compares the names and Taxpayer Identification Numbers (TIN) on the
payment files to the control names (first four characters of the
names) and TINs of the tax debtors. If there is a match and all legal
notifications have been made, Treasury notifies DOD and CMS to reduce
(or levy) the federal payment to help satisfy the unpaid federal
taxes. State could work with IRS and Treasury to develop a similar
process to determine if the passports should be issued or not because
of federal taxes owed.
IRS officials stated that screening passport applicants for federal
tax debts would likely improve tax collections. Such a requirement
could serve as an incentive to individuals wishing to obtain passports
to comply with their tax obligations, thus reducing the level of tax
delinquencies and promoting compliance. IRS officials stated that
there may be practical issues that may arise in implementing such a
requirement. For example, it will require additional work for IRS to
ensure that State adequately safeguards this taxpayer information.
State officials indicated that they would like to study any proposed
legislation to provide additional authority to deny passports
including constitutional, policy, and practical issues that may arise
in its application and use.
Conclusion:
IRS enforcement of federal tax laws is vital--not only to identify tax
offenders--but also to promote broader compliance by giving taxpayers
confidence that others are paying their fair share. As federal
deficits continue to mount, the federal government has a vital
interest in efficiently and effectively collecting the billions of
dollars of taxes owed under current law. Federal law already allows
the linkage of debt collection with the passport issuance process in
certain areas, including for certain outstanding State Department debt
and child support enforcement. The question is whether this is a
public policy strategy that might have broader application in other
areas, such as federal tax debt. If so, legislation would be needed to
facilitate screening for outstanding federal tax liability with
linkage to the passport issuance process. Such legislation could have
the potential to help generate substantial collections of known unpaid
federal taxes and increase tax compliance for tens of millions of
Americans holding passports. Appropriate criteria and safeguards would
need to be developed and applied, such as to ensure individual
privacy, minimize undue approval delays, and permit appropriate
exemptions. Related programs currently operating can serve as a
starting point for such considerations.
Matter for Congressional Consideration:
If Congress is interested in pursuing the policy strategy of linking
federal tax debt collection to passport issuance as an approach to
help reduce the federal deficit and to increase taxpayer compliance
with tax laws, it may wish to consider taking steps to enable and
require the Secretary of State to screen and prevent individuals who
owe federal taxes from receiving passports, to include establishing
criteria for specific categories of passport holders and waivers as
appropriate. To do this, Congress may wish to ask the Secretary of
State and Commissioner of Internal Revenue to jointly study policy and
practical issues and develop options for further consideration,
including developing appropriate criteria and safeguards.
Agency Comments:
We provided a draft of this report to IRS, State, and Department of
the Treasury's Financial Management Service (FMS) for their review and
comment. IRS, State, and FMS did not provide written comments. State
provided technical comments, which we have incorporated as appropriate.
As agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies to the
Secretary of the Treasury, Secretary of State, the Commissioner of
Internal Revenue, and other interested parties. In addition, the
report will be available at no charge on the GAO Web site at
[hyperlink, http://www.gao.gov].
If you or your staff members have any questions about this report,
please contact me at (202) 512-6722 or kutzg@gao.gov. Contact points
for our Offices of Congressional Relations and Public Affairs may be
found on the last page of this report.
Signed by:
Gregory D. Kutz:
Director:
Forensic Audits and Investigative Service:
[End of section]
Appendix I: Scope and Methodology:
To identify the magnitude of unpaid taxes owed by passport recipients,
we requested from the Department of State (State) a list of passport
recipients for fiscal year 2008. We also obtained and analyzed
Internal Revenue Service (IRS) unpaid assessment data as of September
30, 2008. We matched the passport data to IRS unpaid assessment data
using the Social Security number (SSN) field. To avoid overestimating
the amount owed by passport recipients, we excluded from our analysis
tax debts meeting specific criteria to establish a minimum threshold
in the amount of tax debt to be considered when determining whether a
tax debt is significant. The criteria we used to exclude tax debts are
as follows:
* tax debts that IRS classified as compliance assessments or memo
accounts for financial reporting,[Footnote 15] and:
* tax debts of less than $100.
The criteria above were used to exclude tax debts that might be under
dispute or generally duplicative or invalid, and tax debts that were
recently incurred. Specifically, compliance assessments or memo
accounts were excluded because these taxes have neither been agreed to
by the taxpayers nor affirmed by the court, or these taxes could be
invalid or duplicative of other taxes already reported. We further
excluded tax debts of less than $100 because we considered them to be
de minimis amounts for collecting individuals' debts.
To identify examples of abuse or criminal activity, we selected 25
passport recipients with federal tax debts for detailed audit and
investigation. The 25 cases were chosen using a nonrepresentative
selection approach based on our judgment, data mining, and a number of
other criteria, such as total amount of taxes owed by passport
recipients, number of tax years that the passport recipient did not
pay all taxes, types of taxes, and location of the tax recipient.
While these case studies were among the more egregious and cannot be
generalized beyond the cases presented, they serve to illustrate the
sizeable amounts of taxes owed by some individuals and the other
characteristics of the cases that could extend beyond the tax system,
including the use of passports by individuals involved in crimes such
as money laundering. We obtained copies of automated tax transcripts
and other tax records (for example, revenue officers' notes and
certain individual tax returns) from IRS, and reviewed these records
to exclude passport recipients who had recently paid off their unpaid
tax balances and considered other factors before reducing our number
of case studies to 25. We performed additional searches of criminal,
financial, and public records. We updated the tax debt amount as of
July 2010 for these 25 cases, to reflect any additional tax
assessments, including interest and penalty, or collections that have
occurred.
To determine the extent to which State officials are required to
consider tax debts or other criminal activities in the processing of
passports, we examined federal law and State regulations. We also made
inquiries with State officials on whether State specifically considers
tax debts or performs background checks before the passport is issued.
Data Reliability Assessment:
To determine the reliability of IRS unpaid assessments data, we relied
on the work we performed during our annual audits of IRS's financial
statements. While our financial statement audits have identified some
data reliability problems associated with the coding of some of the
fields in IRS's tax records, including errors and delays in recording
taxpayer information and payments, we determined that the data were
sufficiently reliable to address this report's objectives.
To determine the reliability of the passport data, we interviewed
State officials responsible for those databases about the quality of
the data. In addition, we performed electronic testing of the passport
database and used the IRS tax assessment file to determine the
validity of specific data elements used to perform our work.[Footnote
16] Based on our discussions with agency officials and our own
testing, we concluded that the data used for this report were
sufficiently reliable for our purposes.
We conducted this forensic audit from October 2009 to March 2011 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives. We conducted
our related investigative work in accordance with standards prescribed
by the Council of the Inspectors General on Integrity and Efficiency.
Initiation of our audit was delayed significantly because of State's
refusal to comply with our request for the passport recipient database
for over a year. We requested access to the database in September 2008
but did not obtain it until October 2009.
[End of section]
Appendix II: Passport Recipients Owe Federal Taxes:
This appendix presents summary information on passport recipients who
owe federal taxes associated with 10 of our 25 cases. Table 2 shows
the remaining 10 cases that we audited and investigated. As with the
15 cases discussed in the body of this report, we also found abuse and
potentially criminal activity related to the federal tax system or
other federal laws.
Table 2: Summary Information on 10 Passport Recipients with Unpaid
Federal Taxes:
Case: 16;
Unpaid federal tax[A]: $31.7 million;
Comments:
* Individual owed personal income taxes from the late 1990s to mid-
2000s. Individual did not file income tax returns since the mid-2000s;
* IRS collected a small portion of the individual's overdue taxes
through the continuous levy program;
* Individual was indicted for fraud in the mid-2000s. Individual's
trial began about a month after State issued passport and individual
was convicted about a month later;
* IRS records indicate that remaining assets are controlled by court;
* IRS has filed tax liens against the individual's property. IRS has
referred the individual to Treasury for the continuous levy program.
Case: 17;
Unpaid federal tax[A]: $4.7 million;
Comments:
* Individual was CEO of company that provides consulting on
construction projects. Individual owed personal income taxes for 5
years during the 1990s and 2000s. Individual generally did not make
any estimated tax payments during the late 2000s. Individual did not
make any subsequent payments after the taxes were assessed;
* IRS levied federal payments issued to the individual through the
continuous levy program;
* According to IRS records, individual offered to pay about $1.5
million to settle the debts;
* IRS has filed tax liens against the individual's property. IRS has
referred the individual to Treasury for the continuous levy program;
* Individual recently made trips to Mexico, Canada, Spain, and United
Kingdom.
Case: 18;
Unpaid federal tax[A]: $2.8 million;
Comments:
* Individual was assessed hundreds of thousands of dollars in trust
fund recovery penalties for failure to pay employment taxes for over 7
years in the 2000s;
* Individual was recently sentenced for larceny and must pay a
restitution to cover the stolen funds;
* IRS has filed tax liens against the individual's property. IRS has
referred the individual to Treasury for the continuous levy program;
* IRS has collected over $1,000 through the continuous levy program;
* Individual recently made trips to Australia, Spain, and the
Caribbean.
Case: 19;
Unpaid federal tax[A]: $1.6 million;
Comments:
* Individual was a CEO of a medical company;
* Individual was assessed tens of thousands of dollars in trust fund
recovery penalties for several years for failure to pay employment
taxes in the early 2000s. In addition, individual has not filed an
income tax return since the mid-2000s;
* In late 2000s, individual was indicted for Medicare fraud, about a
month after State issued the passport to the recipient. The individual
later pled guilty to the fraud;
* While owing taxes, individual owned a luxury vehicle and also owns a
multimillion dollar house;
* IRS has filed tax liens against the individual's property. IRS has
referred the individual to Treasury for the continuous levy program.
Case: 20;
Unpaid federal tax[A]: $1.3 million;
Comments:
* Individual is a self-employed physician. Individual also receives
retirement payments from the federal government;
* Individual generally withheld less than $1,000 for taxes while owing
tens of thousands in taxes during the 2000s. Recipient failed to file
a tax return for 3 years during the early 2000s;
* IRS has collected tens of thousands of dollars through the
continuous levy program;
* At the same time the individual owed taxes, the individual owned
luxury vehicles and an antique car. Individual also purchased a house
for about $2 million and a yacht for over $150,000. Individual also
purchased an investment property for about $1.5 million;
* IRS has filed tax liens against the individual's property. IRS has
referred the individual to Treasury for the continuous levy program.
Case: 21;
Unpaid federal tax[A]: $500,000;
Comments:
* Individual is a retired physician. Individual owed personal income
taxes for 2 years during the early 2000s;
* IRS has filed tax liens against the individual's property. IRS has
referred the individual to Treasury for the continuous levy program;
* IRS is levying the individual's Social Security Administration
payments for hundreds of dollars a month;
* Individual reported capital gains of over $150,000 in the late 2000s;
* IRS has classified the tax debts as currently not collectible;
* Individual recently made trips to Asia.
Case: 22;
Unpaid federal tax[A]: $400,000;
Comments:
* Individual works in the petroleum industry in the Middle East;
* Individual has not filed individual income tax returns to IRS in the
2000s. The tax debt amount is based on substitute tax returns prepared
by IRS for the early 2000s tax years;
* Financial reports indicate that the individual owns foreign bank
accounts in the Middle East;
* Individual recently made trips to the Middle East, United Kingdom,
and the Netherlands.
Case: 23;
Unpaid federal tax[A]: $300,000;
Comments:
* Individual is a consultant who currently lives outside of the
country;
* Individual generally did not make any estimated payments nor had
withholding made from income since the mid-1990s. Individual did not
make any subsequent payments after the taxes were assessed;
* IRS has filed tax liens against the individual's property. IRS has
referred the individual to Treasury for the continuous levy program;
* IRS has classified the tax debts as currently not collectible.
Case: 24;
Unpaid federal tax[A]: $200,000;
Comments:
* Individual is a Department of Transportation employee. Individual
told our investigators that a passport may be needed for promotion
opportunities;
* Individual owed personal income taxes for a couple of years during
the mid-2000s while working in the private sector;
* IRS has filed tax liens against the individual's property.
Case: 25;
Unpaid federal tax[A]: $200,000;
Comments:
* Individual was an employee of a federal contractor and had
previously worked on contracts with State and the Department of
Defense;
* Individual owed personal income taxes for 3 years during the early
2000s. Individual did not file income tax returns for 6 years during
the early and mid-2000s;
* IRS has referred the individual to Treasury for the continuous levy
program;
* Individual recently made trips to Mexico, Europe, and the Middle
East.
Source: GAO analysis of IRS, State, public, and other records.
Note: Dollar amounts are rounded.
[A] Unpaid tax amount as reported by IRS as of July 2010. Unpaid tax
amount does include penalty and interest.
[End of table]
[End of section]
Footnotes:
[1] The tax gap is the difference between the amount of tax imposed by
law and what taxpayers actually pay on time. The tax gap arises from
the three types of noncompliance: not filing required tax returns on
time or at all (the nonfiling gap), underreporting the correct amount
of tax on timely filed returns (the underreporting gap), and not
paying on time the full amount reported on timely filed returns (the
underpayment gap). The tax gap, about $345.0 billion based on updated
fiscal year 2001 estimates, represents the amount of noncompliance
with the tax laws. It does not include any taxes that should have been
paid on income from illegal activities.
[2] Our analysis included all individuals issued a passport during
fiscal year 2008. Our analysis of individuals with tax debt as of
September 30, 2008, did not include (1) tax debts that IRS classified
as compliance assessments or memo accounts for financial reporting,
and (2) tax debts of less than $100. See appendix I for more details
on our methodology.
[3] Under 26 U.S.C. § 6672, individuals who are determined by IRS to
be responsible for collecting, accounting for, and paying over payroll
taxes who willfully fail to collect or pay these taxes can be assessed
a Trust Fund Recovery Penalty (TFRP). This penalty, typically assessed
against owners or officers of a corporation, such as a president or
treasurer, is assessed for the amount of taxes the business withheld
from its employees' salaries but did not remit to the federal
government, the so-called trust fund portion of payroll taxes. The
business itself is still liable for the entire amount of the unpaid
payroll taxes, but IRS can seek collection from the responsible owner/
officers for the trust fund portion of the unpaid taxes when they are
assessed this penalty.
[4] Willful failure to remit payroll taxes can also be a criminal
felony offense punishable by a fine of not more than $10,000,
imprisonment of not more than 5 years, or both, while the failure to
properly segregate payroll taxes can be a criminal misdemeanor offense
punishable by a fine of not more than $5,000, imprisonment of not more
than 1 year, or both, and the costs of prosecution. 26 U.S.C. §§ 7202
and 7215.
[5] GAO, Internal Revenue Service: Recommendations to Improve
Financial and Operational Management, [hyperlink,
http://www.gao.gov/products/GAO-01-42] (Washington D.C.: Nov. 17,
2000).
[6] The 10-year time limit may be suspended and include periods during
which the taxpayer is involved in a collection due process appeal,
litigation, a pending offer-in-compromise, or an installment
agreement. As a result, figure 2 includes taxes that are for tax
periods from more than 10 years ago.
[7] The Department of the Treasury uses the Treasury Offset Program
(TOP) for FPLP. TOP is an automated process administered by Treasury
in which certain federal payments are withheld or reduced (offset) to
collect delinquent tax and nontax debts owed to federal agencies,
including IRS. For FPLP, Treasury matches federal payments to the tax-
debt records sent to it by IRS, and when a match occurs, Treasury
offsets (levies) the federal payments and transmits the amount levied
to IRS to reduce the tax debtor's outstanding debt and sends the
residual to the debtor.
[8] Subsequent legislation increased the maximum allowable levy amount
to 100 percent for payments to federal contractors and other vendors
for goods or services sold or leased to the federal government.
[9] 26 U.S.C. § 6039E. Any individual failing to provide a SSN is
subject to a $500 penalty, unless it is shown that such failure is due
to reasonable cause and not to willful neglect. IRS has responsibility
for assessing such penalties.
[10] For example, in fiscal year 2009, State issued about 13 million
passports.
[11] According to State, State requested disclosure of the identity
and information on these two persons from IRS pursuant to 26 U.S.C. §
6103(i)(3)(A)(i)-(ii).
[12] IRS has requirements for individuals to file that are based on
filing status, age, and income. The nonfiling of taxes does not
necessarily indicate nonpayment of taxes. However, the histories of
these individuals indicate that taxes were likely due.
[13] In the processing of passports, State officials said that they do
not have access to law enforcement databases of individuals who are
arrested or indicted. According to State, if a court, Department of
Justice, or IRS provided State with a copy of a criminal court order,
condition of parole, or probation which forbids departure from the
United States, and the violation of which could result in the issuance
of a federal warrant of arrest, State would have denied issuance or
subsequently revoked such person's passport.
[14] According to State, State requested disclosure of the identity
and information on these two persons from IRS pursuant to 26 U.S.C. §
6103(i)(3)(A)(i)-(ii).
[15] Under federal accounting standards, unpaid assessments require
taxpayer or court agreement to be considered federal taxes
receivables. Compliance assessments and memo accounts are not
considered federal taxes receivable because they are not agreed to by
taxpayers or the courts.
[16] Data validation edits include (1) tests to see if numeric fields
contain nonnumeric data, and (2) tests on a value to see if it falls
within the range established for the data element.
[End of section]
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